Card issuers target subprime borrowers

9:25 a.m. EST, May 8, 2012|Patricia Sabatini, Pittsburgh Post-Gazette

Credit card issuers have been loosening their purse strings and offering credit to customers with less-than-stellar credit histories again, another signal that the economy is picking up steam, experts say.

"After the crash in 2008, banks slammed on the lending brakes and only people with excellent credit scores could get new credit," said Bill Hardekopf of the credit card comparison website Lowcards.com.

Now that card issuers are targeting subprime borrowers again, "It's a good sign overall for the economy," he said. "It shows that issuers are feeling better about the economy and are starting to take a little bit more risk."

The number of general purpose credit cards issued by banks to subprime customers jumped 41 percent in 2011 to 12 million, up from 8.5 million in 2010, according to a recent report by the credit rating agency Equifax. That compares with the most recent peak of 18.8 million in 2008.

In December, new subprime bank cards hit a three-year high for the month at 1.1 million, up from 900,000 in December 2010, Equifax said.

Equifax defines subprime borrowers as those with credit scores below 660. The top credit score is 850.

In addition, credit limits on new subprime bank cards grew 55 percent last year to $12.5 billion, the highest level since $27.4 billion in 2008 and $41.6 billion in 2007.

In comparison, the number of credit cards issued by retailers to high-risk borrowers grew far less last year, up 5 percent, while credit limits on those cards rose 6 percent, Equifax said.

But while some see increased credit card lending as a positive sign, others view it as potentially troubling. After all, rampant lending to risky borrowers, most notably on home mortgages, helped trigger the financial crisis and ensuing recession.